Buying a Business? Be Careful…! Don’t pay for outdated or unsalable Stock.
When buying a business that holds any kind of stock, it’s important to set the parameters for the stocktake process to ensure the stock you are buying is still in a saleable condition. That refers to both its age and standard of undamaged packaging.
The average benchmark for “use by” codes from date of stocktake is 30 days for grocery and frozen items and 7 days for perishable items such as dairy and bread/bakery products. This is either determined by the company performing the stocktake or an agreement between the two parties at time of stocktake.
When buying a business the stock is to be sold to the purchaser of the business at the cost price, This must occur to allow the business buyer to be able to make a profit on the sale of that stock.
If you sign an agreement that is a WIWO (Walk in Walk out) price, you run the risk of buying stock which is unsaleable This is a risk for the purchaser as the seller has no responsibility for ensuring saleable items. They can also reduce stock levels which ultimately affects the trading ability of the business.
So for added peace-of-mind, it’s best if, when buying a supermarket business, you buy it “+ SAV”.
Some businesses rely upon overseas suppliers for stock. Many of these businesses have been very frustrated with supply issues over the last 12 – 18 months. Most businesses have been impacted and as a result are holding extraordinarily high stock levels in an effort to ensure they can keep supply up to customers. We are seeing significantly high stock values in financials when appraising businesses for sale.
If you are a looking to buy a business in the current economic environment, you will need to accept that stock values for most businesses are not normal at present due to supply issues and availability.
There are ways to negotiate these excessive stock levels when the business sells. If you want to discuss how to navigate this issue when selling a business, give Benchmark a call and we can assist you to navigate this difficult process
